Financial Times
Venezuelan bill worries oil groups
By Andy Webb-Vidal
Published: September 4 2001 15:16GMT | Last Updated: September 5 2001 09:19GMT
Multinational oil companies in Venezuela are getting anxious. A proposed
law, which they fear will restrict investment and could lead to virtual
"renationalisation" of their industry, is edging nearer the statute book.
As a result, international oil companies decided this week to step up
efforts to persuade the energy ministry to rethink the hydrocarbons bill,
which would affect investments worth $20bn.
Its approval by President Hugo Chávez is imminent, but legislators in
Venezuela's National Assembly are having no say in the preparation of the
law, which gives sweeping powers to the ministry.
The legislation is being drafted by a presidential commission headed by
Alvaro Silva, the energy minister. Mr Silva was also involved in preparing
the nationalisation law of 1975.
Multinational oil companies say they have not been consulted about the bill.
Under the bill, royalty tax payments in Venezuela, the world's
third-largest oil exporter, would jump from 16.6 per cent to 30 per cent,
leaving them among the highest in the industry.
In Venezuela, royalties are levied regardless of production costs, which
are relatively high among the extra-heavy crude joint ventures in the
oil-rich Orinoco River belt and in the country's marginal oil fields, which
were opened to foreign capital in the mid-1990s.
The trend in recent years has been for royalties to fall, industry
observers say. Saudi Arabia's royalties are set at 20 per cent, while
Nigeria's vary from 20 per cent to zero. Other countries, such as the UK,
Norway and Qatar, have removed royalties.
"This is swimming against the current," says Humberto Calderón, a former
oil minister and former head of Petroleos de Venezuela (PDVSA), the state
oil company. "If the proposed law is approved in its present form, the
development of heavy crudes in the [Orinoco belt] would be effectively off
limits."
The new legislation would also damage to PDVSA, whose executives in private
describe the bill as "disastrous".
Under the law, PDVSA's participation in joint ventures would have to be
above 50 per cent, a requirement that PDVSA would not be able to afford,
and would add Venezuela's country risk premium to investment costs. PDVSA
needs to operate together with foreign capital to help it increase, as
planned, Venezuela's potential output capacity by 35 per cent to 5.5m
barrels per day during the next five years.
Reduced foreign capital investment would come at a time when Venezuela's
oil production capacity has already been constrained as a result of its
adherence to output quotas agreed with the Organisation of Petroleum
Exporting Countries.
Mr Silva says the across-the-board royalty increase would be offset by a
lower corporate tax rate, which would drop from 67 per cent to between 30
and 40 per cent, ensuring a smoother tax revenue stream and easier budgeting.
But oil industry executives say that in most of the existing joint venture
projects in the Orinoco belt, where PDVSA's equity participation is limited
to 30 per cent, multinationals already pay a lower corporate tax rate.
This week, oil sector economists are also expected to begin lobbying the
energy minister, pointing out that the proposed law could ultimately lead
to lower tax revenue, a negative impact of the law that is likely to catch
the attention of Mr Chávez, for whom public spending programmes are a
central feature of his government's policies.
Finance ministry officials say that, under the proposed royalty scheme, tax
revenue would be between 5 and 10 per cent less, even if crude oil output
levels remained at current levels and investment was not reined in.
Mr Silva said last week that he was open to suggestions for amendments to
the new law, and that existing contracts would be honoured, even though
they are not referred to in the bill. However, Mr Silva's track record does
nothing to reassure the oil companies. During the 1990s, he opposed the
opening up of the oil sector to foreign capital.
As one oil executive said: "What is the agenda here? Do they truly not want
foreign oil companies to invest? You read some of the articles [of the new
law] and it looks like that."
Louis Proyect
Marxism mailing list: http://www.marxmail.org